Aon has responded to the Department for Work and Pensions (DWP) consultation on delivering Collective Defined Contribution (CDC) pension schemes.

Kevin Wesbroom, senior partner at Aon, said: “We firmly believe that CDC plans can improve the retirement outcomes for many UK workers via collective investment by professionals not members, by having benefits expressed in income terms not capital accounts, by the pooling of longevity risk and by individuals not having to buy an annuity at poor times in the market - to name but a few advantages.

“We wholly support the focus in the consultation of permitting CDC plans, such as that being set up by Royal Mail, to proceed.

However, we believe the full potential of CDC to improve retirement outcomes will require decumulation-only vehicles. They would provide a much-needed alternative option for the spending phase of conventional individual DC schemes. We would encourage the DWP to make sure that the legislation does not preclude the development of these CDC vehicles.”

Matthew Arends, Head of UK Retirement Policy at Aon said: “Aon’s response addresses the very pertinent and targeted questions that the DWP has raised – this is a good, focused consultation. We have put forward suggestions in relation to discrimination, communication, auto-enrolment and trustee governance which we believe supplement and build on the framework proposed by the DWP.

“In particular, we encourage the DWP to press ahead with wider public disclosure of the key financial aspects of CDC plans as they develop over time. This would make CDC schemes open to the widest public scrutiny and ensure that they remain true to the principles and targets communicated to members. We have also suggested a further control process via a sustainability review which would ensure the continued viability of the plan and the relationship between contributions and targeted benefits.

“In this way, CDC plans will be among the most transparent form of pension provision found anywhere in the world.”